According to the Institute of Business Ethics, tax evasion is not illegal, however, it “has been branded by some as ‘immoral’, and unethical practice that undermines the integrity of the tax system” (Institute of Business Ethics, 1). In 2013, Prime Minister David Cameron spoke up about the issue and promised to “clamp down” on international companies operating in the United Kingdom engaging in tax evasion. The issue of corporate tax avoidance by international companies will be reviewed from the policy, legal, and ethical perspectives below.
Bowler states that the HMRC has a non-legislative rule-making approach to prevent tax avoidance (Bowler 23). The author also mentions an unclear legislation: the “Abuse of law” provision. Quoting the regulation, Bowler (39) highlights that the text of the law states that “The prohibition of abuse is not relevant where the economic activity carried out may have some explanation other than the mere attainment of tax advantages”. This exception creates a confusion, and certainly makes jurisdiction more complicated. GAAR (General Anti-Avoidance Rule) has some exclusions built in that make ruling hard, and aggressive tax avoidance legal.
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Get Help Now!Amoa-Gyarteng (367) describes tax avoidance as a corporate social responsibility issue. The author states that while the OECD plan was ratified by the G20 countries in 2013, it does not mean that the problem disappeared. Many companies are using tax havens to avoid paying tax in the country where they operate, and this means that they do not pay their fair share of taxes, and the country of operation does not benefit from their economic activities.
Bond, Gammie and Whiting mention that in recent years governments have introduced Tax Avoidance Disclosure rules that are designed to spot and highlight tax planning and tax avoidance schemes before they can be implemented. The disclosure regime, introduced in the United Kingdom in 2004 makes it compulsory for promoters to disclose the details of marketed schemes within five days of making them accessible for companies. Tax planning has also got to be disclosed. VAT planning rules were also introduced, and disclosure needs to be completed within 30 days of the VAT return submission date.
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Freedman, Loomer, and Vella (75) mentions the OECD’s study published in January 2008, which is focusing on eliminating companies’ aggressive tax planning practices. However, the UK government’s approach was based on trust and cooperation, instead of putting enforcement measures in place. The survey created by the authors (Freedman, Loomer, and Vella) shows that managers and accountants were more likely to respond to principle-based guidelines. Simplicity was also an important aspect, and the guidances, rules, recommendations of the HMRC were found to be too complicated. The survey results show that British companies are likely to follow guidances based on clear principles. On the other hand, international companies operating in the United Kingdom.
The British Parliament’s recommendations created in 2013 (House of Lords, 43) propose “to correct the flaws in the UK’s corporation tax regime and to pursue agreement to make the international tax framework more rigorous”. The authors of the review also state that the international tax system of the United Kingdom has failed, and is unable to serve its purpose, therefore, reforms are needed. Anti-avoidance measures are recommended to be strengthened, such as Disclosure of Tax Avoidance Schemes (DOTAS), and the General Anti-Abuse Rule, however, the report also suggests that these regulations will be revised and made clearer. Overall, the report recommends tightening the legislative framework, and making the law easier to apply, understand, and comply with.
Works Cited
Amoa-Gyarteng, K. International Tax Avoidance Schemes: An Investigation of Multinational Technology Companies. International Journal of Academic Research in Accounting, Finance and Management Sciences. Vol. 4, No.1, January 2014, pp. 365–370 2014. Web. ,http://hrmars.com/hrmars_papers/Article_41_International_Tax_Avoidance_Schemes.pdf>
Bond, S., Gammie, M. and Whiting, J. Tax avoidance. Institute for Fiscal Studies. 2006. Print. <http://www.ifs.org.uk/budgets/gb2006/06chap10.pdf>
Bowler, T. Countering Tax Avoidance In The UK: Which Way Forward? The Institute for Fiscal Studies. 2009. Web. <http://www.ifs.org.uk/comms/dp7.pdf>
Freedman, J., Loomer, G. and Vella, J. Corporate Tax Risk and Tax Avoidance: New Approaches Thomson Reuters. 2009. Print. <http://www.law.ox.ac.uk/themes/tax/documents/Fr.Lo.Ve.25.03.09.pdf>
House of Lords Tackling corporate tax avoidance in a global economy: is a new approach needed? Select Committee on Economic Affairs 1st Report of Session 2013–14 . 2014. Web. <http://www.publications.parliament.uk/pa/ld201314/ldselect/ldeconaf/48/48.pdf>
Institute of Business Ethics. Tax Avoidance as an Ethical Issue for Business. Business Ethics Briefing. 2013. Web. <http://www.ibe.org.uk/userassets/briefings/ibe_briefing_31_tax_avoidance_as_an_ethical_issue_for_business.pdf>
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